My grandpa flipped condos before flipping was a thing. He loved real estate, and since I loved my grandpa, I thought it seemed like the coolest way to earn money.
But like many millennials, I’ve never had the capital to buy an investment property, and I assumed I needed to be a millionaire to invest in real estate development.
So when I learned about a company called Fundrise, which helps you invest in real estate with $1,000, I was all ears.
I hopped on the phone with Kendall Davis, Fundrise’s vice president of investments, to get the scoop on the company — and how to invest in real estate with little money.
What is Fundrise?
When Ben Miller, co-founder and CEO of Fundrise, was a real estate developer in Washington, D.C., he saw a lot of inefficiencies: large-scale developments that weren’t right for the consumer or neighborhood and small-scale developments that couldn’t get funding.
After capital fell through on several of his projects, he realized there had to be a better solution.
When he began brainstorming ways to use technology to help developers like himself, he soon discovered another problem.
As Davis explained, “No individual investors had the ability to actually invest in these small projects and their neighborhoods and communities.”
So Miller came up with an idea to help both aspiring investors and himself: In 2010, he co-founded Fundrise, a crowdfunding platform for real estate investments.
“Of course there were ways to invest in real estate before,” said Davis, “but they involved large capital commitments.”
“So unless you’re an accredited investor with over a million dollars in net worth or are willing to put in the time to do a fix-and-flip or lease out a unit, it’s been really hard to get that type of real estate exposure,” she explained.
Seven years later, the site has more than 139,000 clients who’ve invested $1.2 billion.
How can you invest in real estate with little money?
To put it simply, Fundrise invests in real estate throughout the United States. You invest in Fundrise, and when it makes money, you do too.
“If you’re an investor on our site, you could purchase a share that provides capital to help us purchase homes,” explained Davis.
She offered the following example: In Los Angeles, Fundrise finds a home on an undervalued piece of land. It buys the house for $400,000, completes renovations, and splits it into two separate homes. It then sells the property for $800,000.
The profit from that sale? It goes back to the company and into the hands of the shareholders — including you.
You’d likely receive those earnings in quarterly dividends, depending on how well the company’s doing. You also could receive dividends from rental income earned by the company.
The other way to make money with Fundrise is by selling your shares.
“Let’s say you bought in at $10 a share,” explained Davis, “and the property values within the fund increased, so your net asset value per share went up to $12. You would keep the profit of that additional $2 when you liquidate it.”
Intrigued? To start with Fundrise, you need to make an initial investment of $1,000. After that first chunk, you’re free to invest smaller amounts.
That might sound like a lot. But think about how much it costs to start with other real estate investments — like buying an income property. Spoiler alert: It’s a lot more.
You can choose to invest your money in one of seven different Fundrise funds. Five are location-based: D.C., L.A., East Coast, West Coast, and Heartland. Two are goal-based: focused on either income or growth.
For new real estate investors, Davis recommended the goal-based funds: income if your priority is creating passive income and growth if it’s getting the biggest possible return. Or you can choose a middle option that maximizes diversification.
In its seven years in operation, Fundrise has seen historical returns of 8 to 10 percent annually.
Who should invest in Fundrise?
According to Davis, Fundrise is good for people playing the long game — and by that she means five to seven years.
“Real estate is supposed to be a long-term investment,” she said. “It takes time for that appreciation to happen — and in some cases, it can take some time to generate cash flow as well.”
“So it’s important to think about our investments as longer-term than something you’d want to trade in and out of really quickly,” Davis added.
Davis said a good example is if you’re interested in buying a house in a few years.
Instead of letting your down payment sit in a savings account, she suggested investing it with Fundrise, earning dividends, and then having a bigger down payment when you’re ready to buy.
“If you can invest your money for five years, you’re going to be in a much better position to buy that house,” she explained.
Is it worth the risk?
Well, that’s entirely up to you. You’re responsible for making your own investment decisions.
Davis can’t answer that question either. But she was quick to emphasize the value of diversity in your investments.
“All investors should have a diversified portfolio,” she said. “Real estate is just one part of that.”
If you’re worried about another housing crash, she pointed out that the real estate market has made a strong recovery since 2008.
“Having a long-term horizon will help you weather any immediate downturn,” she said. “We also diversify our real estate investments to mitigate that risk.”
The bottom line? Whether you’re interested in Bitcoin or mutual funds, it’s important to consider long-term investments.
And if you want to learn how to get into real estate investing, Fundrise is one place to start.
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